RIL must give up insistence on arbitration over KG Basin: Government

New Delhi: The government on Monday told the Supreme Court that Reliance Industries must stop insisting on arbitration to sort out the dispute over the price of gas under the KG Basin production-sharing contract, as the government's right to change policy cannot be contested.

"We have changed that policy (on pricing). We have the right to change it every quarter," Solicitor General Ranjit Kumar said. "Reliance cannot insist that we stick to the old policy and given them that price ... Can a policy be made a subject of arbitration proceedings?"

Reliance Industries' counsel, Harish N Salve, contested this saying that the company's arbitration notice had nothing to do with policy. "It is a contractual right," he argued. "Once an arbitral panel is set up, it can also decide if the issue can be arbitrated. There is a contract and there is an arbitration activation clause."

The two sides had earlier agreed to arbitrate the dispute over the issue, but couldn't agree on a third arbitrator after naming their respective nominees to the panel — the government wanted an Indian but Reliance Industries and partner Niko Resources insisted on a person of neutral nationality.

While the company approached the Supreme Court for its intervention to name the third arbitrator, the government took a stand that just because it appointed an arbitrator, it doesn't have to proceed with the arbitration.

Reliance Industries initiated arbitration proceedings on May 9, 2014. The then UPA government had brought in a notification in January 2014, months before the Lok Sabha elections, revising the price of gas from $4.2 per mmbtu to $8.4. That notification was stayed by the Election Commission and never given effect to. The Modi government, after taking over in May 2014, brought in a notification in October that year to revise the price to $5.61. It was changed again to $5.18.Soon after the new Arbitration Act came into effect, the two sides quibbled over whether the third arbitrator should be appointed under the new law or the old. The company insisted that the old law applies, in a bid down to cut down the delay and rush the arbitration, whereas the government said the new law would apply.

On Monday, the solicitor general drew the court's attention to a public interest litigation filed by former parliamentarian Gurudas Dasgupta challenging the policy. "What will happen if the policy is struck down? Can arbitration be allowed?" Salve insisted that the two cases were not linked. In case, if the policy were to be struck down, it would give the government a good defence in the arbitration proceedings, he suggested.

The government's law officer suggested that the company issue a fresh arbitration notice if it wasn't challenging policy and only making out a case under the production-sharing contract. The court will hear the matter on July 27.